Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

We got a Home Equity Loan for our house to get the cash to

loan to my husband's Sch...
We got a Home Equity Loan for our house to get the cash to loan to my husband's Sch. C business. His Sch.C business has been paying the monthly mortgage payments. What is the best way to handle this for tax purposes? I know interest expenses are deductible for Sch. A. Can his business expense the whole payment? Or is the interest payment reported on his Sch.C?
How about the expenses paid to get the HEL? Should we draw an agreement for the loan to his business? Our house is included in a family revocable trust. We are grantor and trustee.
Show More
Show Less
Ask Your Own Tax Question
Answered in 3 hours by:
11/4/2012
Dave CPA
Dave CPA, Accountant
Category: Tax
Satisfied Customers: 840
Experience: Vast knowledge within the accounting/tax industry
Verified
Hello,

The easiest way to show this would be for the interest to be deducted on schedule A and not part of the schedule C. Since the loan was made to you and not the business, it would not be best for the business to reflect the expense. In addition, by the business capturing the expense you would be decreasing the self employment tax, which you don't want to do.

Below is the definition of Home Equity Debt per the IRS and since your schedule C company doesn't own the home used as collateral, they can't justify the interest expense.

Home equity debt is a mortgage you took out after October 13, 1987, that:

Does not qualify as home acquisition debt or as grandfathered debt, and

Is secured by your qualified home.

Drawing up a loan to the business from the family would then force the family to recognize interest income on that loan, which I don't think you want to do.

The expenses paid to get the HEL would be deducted on schedule A as well if they pertain to points. Since the loan was not to improve your home, you have to amortize the expense over the life of the loan. So if the expense was $3,000 and the loan was for 30 years, you would deduct $100 a year.

Below is a link to the IRS that has some information on interest deductions on mortgages and their related expenses, which you might find informative.

http://www.irs.gov/publications/p936/ar02.html#en_US_2011_publink1000229991

The fact that this house is included in a trust doesn't impact this answer.

Let me know if you have any questions before you rate my answer. A positive rating is what I strive for.
Ask Your Own Tax Question
Customer reply replied 5 years ago

Hi Dave,


 


Thank you for your answer. But your explanation is too vague or I just don't understand. You gave websites for me to research. If I have to do that, I wouldn't ask you any questions here. So I feel that you are not meeting my satisfaction. Would please explain the laws and reasons behind in the simplest terms for me? Thank you.


 


Why would you not want to reduce SE tax? Why reducing SE tax is not desirable? Wouldn't you rather pay less tax than more legally?


 


Why not draw a loan documents? Can you tell me pros and cons of drawing a loan documents? Is the loan documents valid if it wasn't drawn by a lawyer? If there is a loan document, can the whole payment of the loan monthly can be expensed from the Sch.C?


Granted then the interest income need to be picked up by us, what's the net benefit for doing that treatment?


 


I am sure there are more people, who took out the HEL to loan to self employment business. HEL gives better loan rate and moreover many Sch.C business don't qualify to get any business loans.


 


Thank you, Dave.

Hello,

 

I provided the IRS information as backup to support my statement. So customers like to review it for themselves. I apologize if you didn't find it helpful. Let me try and address your concerns point by point.

 

Why would you not want to reduce SE tax? Why reducing SE tax is not desirable? Wouldn't you rather pay less tax than more legally?

 

The reduction of your SE tax is not correct because it is being done by claiming a deduction that you are not entitled too because it doesn't qualify as the business's expense and there for the deduction would be taking in error. This error would reduce you liability incorrectly and that is not what you want to. A reduction in your SE liability is usually desirable via deductions that you are entitled too.

 

 

Why not draw a loan documents? Can you tell me pros and cons of drawing a loan documents? Is the loan documents valid if it wasn't drawn by a lawyer? If there is a loan document, can the whole payment of the loan monthly can be expensed from the Sch.C?

 

If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used

 

This interest isn't treated as a business expense.

 

Granted then the interest income need to be picked up by us, what's the net benefit for doing that treatment?

 

Per the IRS rules noted above this isn't allowed for this type of transaction.

 

 

The botXXXXX XXXXXne is that the interest deduction should only be captured on your schedule A or your 1040.

 

Please let me know if you need any further clarification and I wish you the best of luck.

Dave CPA
Dave CPA, Accountant
Category: Tax
Satisfied Customers: 840
Experience: Vast knowledge within the accounting/tax industry
Verified
Dave CPA and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Dave CPA Your Own Question
Dave CPA
Dave CPA
Dave CPA, Accountant
Category: Tax
Satisfied Customers: 840
840 Satisfied Customers
Experience: Vast knowledge within the accounting/tax industry

Dave CPA is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Can we claim the mortgage interest for a second home on
Can we claim the mortgage interest for a second home on property that we purchased and have developed a rustic "camp" on? We have an outhouse (bathroom), outdoor kitchen area, and a small building we … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,452 satisfied customers
Form 886-A Deductible Home Mortgage Interest Taxpayer has
Form 886-A Deductible Home Mortgage Interest Taxpayer has $1,000,000 in Grandfathered debt. Line 9 Form 886-A - is this line amount after deducting the garandfathered debt… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I entered my mortgage interest in the section marked
I entered my mortgage interest in the section marked mortgage. … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Dose mean can not deduct state income taxes only or dose it
dose mean can not deduct state income taxes only or dose it includes property taxes too … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Is the house or taxes deductible for him. How does it affect
Is the house or taxes deductible for him. How does it affect his taxes. How can the house be in both our names, without making me an equal partner.… read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
31 satisfied customers
Form 1120, cash basis. If Taxes paid to IRS are deductible,
Form 1120, cash basis. If Taxes paid to IRS are deductible, are refunds for overpayment the equivalent of income?… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
717 satisfied customers
I am a personal injury attorney doing a schedule c as we
I am a personal injury attorney doing a schedule c as we speak. . … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Small schedule c business donates fully depreciated
small schedule c business donates fully depreciated furniture to charity. They've been told that the FMV is $1,000. What is the deduction for contributed property? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Mortgage Interest Taxpayer inherited two homes in the same
Mortgage InterestTaxpayer inherited two homes in the same year. One from each parent, both were primary resident of deceased parent. Deceased parents were divorced and both died within 12 months of ea… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
You may recall that tax deductions are only deductible by
You may recall that tax deductions are only deductible by the legislative grace of Congress. After this lesson, you might have realized that Congress was pretty generous with the types of business exp… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,452 satisfied customers
Can house maintenance and property taxes be deducted on form
Hello. Can house maintenance and property taxes be deducted on form 1041 for a house owned by decedent prior to the Executors selling it? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Regarding the 'capitalize the mortgage interest'. I was a
Regarding the 'capitalize the mortgage interest'. I was a partner in a rehabbing/flipping real estate business. We rehabbed two properties in 2016 and sold them in 2017. According to the first propert… read more
taxmanrog
taxmanrog
Master\u0027s Degree
697 satisfied customers
I would like clarification on the IRS tax deductions and a
I would like clarification on the IRS tax deductions and a rental property I purchased recently. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Deductible unreimbursed partnership expenses are deductible
Deductible unreimbursed partnership expenses are deductible on Line 28 of Schedule E. In this case the expense is a tractor with a cost of $ 25,000.00. This is a depreciable asset and would not normal… read more
Matthew Breecher
Matthew Breecher
President
MBA (Graduate Legal Studies)
285 satisfied customers
I was audited on my schedule C and the deductions that were
i was audited on my schedule C and the deductions that were claimed for 2014 & 2015, the letter states if i don't respond to the letter , the IRS will issue an examination report showing additional ta… read more
Rick Martin
Rick Martin
MBA
92 satisfied customers
My question is about tax deductions (Mortgage Interest.
My question is about tax deductions (Mortgage Interest. Mortgage Insurance premium & Real Estate Taxes) that can be deducted by two, unrelated people, who own a house together.The two unrelated owners… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Can you still deduct mortgage interest and real estate taxes
Can you still deduct mortgage interest and real estate taxes payments? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
May I deduct mortgage interest paid on a property in Puerto
May I deduct mortgage interest paid on a property in Puerto Rico? The lending institution does not send form 1098, but a different form (480.7A) to be used if I file Puerto Rico taxes. … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x